Gold posts slight gain to end near two-week high

SAN FRANCISCO (MarketWatch) -- Gold futures posted a slight gain Monday, staging an intraday turnaround to close near their highest level in two weeks as oil prices rose to a high above $62 a barrel.

Key oil producers voiced concerns over the recent price decline, raising the prospect of a production cut. The resulting rise in oil prices from the benchmark contract's 10-month low helped fuel safe-haven demand for gold. See Futures Movers.

The gold price reversal in Monday's session was "just book squaring before close -- some of it related to housing [data], some to oil," said Jon Nadler, an investment products analyst at bullion dealers Kitco.com.

But the late move was also due to "speculation about probable cuts in interest rates to avert a tailspin seen in the economy of late," he said.

Gold for December delivery closed at $595.90 an ounce on the New York Mercantile Exchange, its strongest closing level since Sept. 13. The contract finished up 50 cents for the day, reversing from a low of $587.50.

December silver rose 1.5 cents to end at $11.325 an ounce. It had fallen as much as 18 cents earlier.

"Physical buying in gold remains strong while silver is holding above $11," said James Moore, an analyst at TheBullionDesk.com in London.

Gold prices gained over $7 on Friday to tally a gain of more than $12 an ounce last week, finding support in overseas demand and a weaker dollar.

The dollar was last trading down 0.2% against the yen but was 0.2% higher against the euro. See Currencies.

In economic news, median sales prices of existing homes fell from year-ago levels in August for the first time in 11 years and just the sixth time in the past 30 years, the National Association of Realtors said Monday. See full story.

Indian gold demand remains strong

Demand for gold was also of key concern Monday as traders struggle to guess the next direction for the metals market.

"Reports indicate that despite the first-half of the year slump in demand for gold from India, the country may actually end up buying close to 800 tons of gold in 2006 overall," said Nadler.

That would represent a 10% increase from 2005. "Local buyers have keenly focused on gold values and may have finally gotten their wishes with the (recent) second bout of corrective action in precious metals prices," said Nadler.

Jewelry demand alone is expected to be close to 600 tons, which would be more than the total amount that central banks will sell this year whether or not they meet their allowance quota by Tuesday's Washington Agreement deadline, he said. The Washington Agreement is a handshake-pact among 15 central banks that limits on each year's gold sales from sovereign vaults.

"At this juncture, having basically accounted for its all-important 'missing' component, the gold market can once again get back and focus on U.S. dollar problems...tenuous production figures, and the general geopolitical climate," Nadler said.

Other metals closed on mixed Monday. October platinum lost $14.90, or 1.3%, to close at $1,133.20 an ounce and December palladium gave back $4.45 to finish at $317.20 an ounce. December copper added 0.4 cent to close at $3.4475 a pound after tapping a low of $3.345.

On the supply side, gold inventories were down 40,208 troy ounces at 7.98 million troy ounces as of late Friday, according to Nymex data. Silver supplies dipped by 295,472 troy ounces at 103.1 million troy ounces and copper supplies were up 1,081 short tons to 20,627 short tons.

Shares of Bema Gold
BGO, -1.51%
fell 5.2% to close at $4.34, leading the decliners in the Philadelphia Gold and Silver Index
XAU, +2.05%
which closed at 124.68, down 0.9%, but above the session's low of 121.75.

The Amex Gold Bugs Index
HUI, +2.31%
closed at 291.25, down 1.1%, and the CBOE Gold Index
GOX, -0.56%
shed 0.9% to end at 126.97.

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